Q&A: Etihad Raises Its Exposure to Loss-Making Air Berlin

Etihad Airways has pumped in a further EUR300 million into loss-making Air Berlin, subscribing to a bond that can be converted into equity. The Abu Dhabi flag carrier also extended the maturity of a loan to the German airline.

WSJ: Who decides on the EUR300 million bond’s conversion to equity? What is the coupon?

Etihad: “It is convertible at Etihad’s discretion at any time.” The coupon is “Eight per cent per annum.”

WSJ: At what rate will the bond be converted at? How will it be accounted for?

Etihad: “The bond converts at a conversion price which was set at a share price of 3M VWAP-10% (€1.79/share) one day prior to signing.”

“We cannot speak on behalf of Air Berlin in terms of the quasi-equity accounting treatment of the instrument on their balance sheet.”

WSJ: How does this get around E.U. rules on equity ownership?

Etihad: “The deal is fully compliant with all EU foreign ownership and control regulations. This instrument is not intended as a way around the EU rules on equity ownership but is for the purpose of supporting Air Berlin’s financial restructuring. Etihad’s shareholding in Air Berlin remains unchanged at 29.21%.”

WSJ: How will you convert the bond if E.U. restrictions on foreign ownership remain?

Etihad: “The bond can be converted at any time. However in the event of any conversion, the parties would be required to comply with any applicable law and regulation.”

“Clearly Etihad will not convert if the resulting increase in shareholding would contravene EU foreign ownership and control restrictions.”